Performance

Management
2nd Edition
Performance Management
and Reward Systems
in Context
 Overview
 Definition of Performance Management (PM)
 The Performance Management Contribution
 Disadvantages/Dangers of Poorly
Implemented PM Systems
 Definition of Reward Systems
 Aims and Role of PM Systems
 Characteristics of an Ideal PM System
 Integration with Other Human Resources and
Development Activities
 Definition of
Performance Management
(PM)
 Definition of PM

1. Continuous Process of
 Identifying
 Measuring
 Developing

The performance of individuals

and teams
Definition of PM (continued)

and

2. Aligning performance

with

Strategic Goals of the organization

Performance Management
is NOT
performance appraisal
PM is NOT performance appraisal

 Performance Management
• Strategic business considerations
• Driven by line manager
• Ongoing feedback
 So employee can improve performance
PM is NOT performance appraisal

 Performance Appraisal
• Driven by HR
• Assesses employee
 Strengths &
 Weaknesses

• Once a year
• Lacks ongoing feedback
 Contributions of
Performance Management
Contributions of Performance Management
For Employees

 Clarify definitions of
job
success criteria
 Increase motivation to perform
 Increase self-esteem
 Enhance self-insight and development
Contributions of Performance Management
For Managers
 Communicate supervisors’ views of
performance more clearly
 Managers gain insight about
subordinates
 Better and more timely differentiation
between good and poor performers
 Employees become more competent
Contributions of Performance Management
For Organization/HR Function

 Clarify organizational goals

 Facilitate organizational change
 Fairer, more appropriate administrative
actions
 Better protection from lawsuits
Disadvantages/Dangers of
Poorly-implemented
PM Systems
 Disadvantages/Dangers of Poorly-
implemented
PM Systems


For
Lowered Employees
self-esteem
 Employee burnout and job
dissatisfaction
 Damaged relationships
 Use of false or misleading information
Disadvantages/Dangers of Poorly-implemented
PM Systems


For Managers
Increased turnover
 Decreased motivation to perform
 Unjustified demands on managers’
resources
 Varying and unfair standards and
ratings
Disadvantages/Dangers of Poorly-implemented
PM Systems

For Organization
 Wasted time and money
 Unclear ratings system
 Emerging biases
 Increased risk of litigation
Reward Systems
 Reward Systems
Definition
Set of mechanisms for distributing
 Tangible returns
and
 Intangible or relational returns

As part of an employment relationship

 Reward Systems
Tangible returns

 Cash compensation
Base pay
Cost-of-Living & Contingent Pay
Incentives (short- and long-term)
 Reward Systems
Tangible returns (continued)
 Benefits, such as
Income Protection
Allowances
Work/life focus
 Reward Systems
Intangible returns
 Relational returns, such as
Recognition and status
Employment security
Challenging work
Learning opportunities
 Returns and
Their Degrees of Dependency
on the
Performance Management System
 Returns with Low Dependency
on the
Performance Management System
 Cost of Living Adjustment
 Income Protection
 Returns with Moderate Dependency
on the
Performance Management System
 Work/Life Focus
 Allowances
 Relational Returns
 Base Pay
 Returns with High Dependency
on the
Performance Management System
 Contingent Pay
 Short-term Incentives
 Long-term Incentives
Purposes of PM Systems
 Purposes of PM Systems:
Overview

 Strategic
 Administrative
 Informational
 Developmental
 Organizational maintenance
 Documentational
 Strategic Purpose

 Link individual goals with

organization’s goals
 Communicate most crucial business
strategic initiatives
Administrative Purpose

 Provide information for making

decisions re:
Salary adjustments
Promotions
Retention or termination
Recognition of individual performance
Layoffs
 Informational Purpose

Communicate to Employees:
 Expectations
 What is important
 How they are doing
 How to improve
Developmental Purpose

 Performance feedback/coaching
 Identification of individual strengths
and weaknesses
 Causes of performance deficiencies
 Tailor development of individual
career path
Organizational Maintenance
Purpose
 Plan effective workforce
 Assess future training needs
 Evaluate performance at
organizational level
 Evaluate effectiveness of HR
interventions
Documentational Purpose

 Validate selection instruments

 Document administrative decisions
 Help meet legal requirements
 An Ideal PM System:
14 Characteristics
1. Congruent with organizational
strategy
2. Thorough
3. Practical
4. Meaningful
5. Specific
6. Identifies effective/ ineffective
performance
7. Reliable
 An Ideal PM System:
14 Characteristics (continued)
8. Valid
9. Acceptable and Fair
10. Inclusive
11. Open (No Secrets)
12. Correctable
13. Standardized
14. Ethical
 Congruent with organizational
strategy
 Consistent with organization’s
strategy
 Aligned with unit and organizational
goals
 Thorough
 All employees are evaluated
 All major job responsibilities are
evaluated
 Evaluations cover performance for
entire review period
 Feedback is given on both positive
and negative performance
 Practical

 Available
 Easy to use
 Acceptable to decision makers
 Benefits outweigh costs
 Meaningful

 Standards are important and relevant

 System measures ONLY what employee
can control
 Results have consequences
 Evaluations occur regularly and at
appropriate times
 System provides for continuing skill
development of evaluators
 Specific

Concrete and detailed guidance to

employees
• What’s expected
• How to meet the expectations
 Identifies
effective and ineffective
performance
 Distinguish between effective and
ineffective
• Behaviors
• Results
 Provide ability to identify employees
with various levels of performance
 Reliable

 Consistent
 Free of error
 Inter-rater reliability
 Valid

 Relevant (measures what is important)

 Not deficient (doesn’t measure
unimportant facets of job)
 Not contaminated (only measures
what the employee can control)
 Acceptable and Fair

 Perception of Distributive Justice

• Work performed  Evaluation received 
Reward

 Perception of Procedural Justice

• Fairness of procedures used to:
 Determine ratings
 Link ratings to rewards
 Inclusive
 Represents concerns of all
involved
• When system is created,
employees should help with
deciding
 What should be measured
 How it should be measured

• Employee should provide input on

performance prior to evaluation
 Open (No Secrets)

 Frequent, ongoing evaluations and

feedback
 2-way communications in appraisal
meeting
 Clear standards, ongoing
communication
 Communications are factual, open,
honest
 Correctable

 Recognizes that human judgment is

fallible
 Appeals process provided
 Standardized

 Ongoing training of managers to

provide
 Consistent evaluations across
• People
• Time
 Ethical

 Supervisor suppresses self-interest

 Supervisor rates only where she has
sufficient information about the
performance dimension
 Supervisor respects employee privacy
 Integration with other
Human Resources
and Development Activities
 PM provides information for:
• Development of training to meet
organizational needs
• Workforce planning
• Recruitment and hiring decisions
• Development of compensation
systems
 Quick Review

 Definition of Performance Management

(PM)
 The Performance Management
Contribution
 Disadvantages/Dangers of Poorly
Implemented PM Systems
 Definition of Reward Systems
 Aims and Role of PM Systems
 Characteristics of an Ideal PM System
 Integration with Other Human Resources